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Financial planning for second marriages

Generally speaking, and removing all emotion from it, divorce is about money: dividing the assets and the income. But a second marriage is about feeling the everyday, how-you-live-your-new-life mutual respect and newfound love to develop a solid foundation and mutual trust in a blended family. There is great wisdom and caring in managing each other’s differing expectations to establish this solid trust.

Financial advisors often manage expectations for both parties, as divorced couples retain him or her as a result of their long-standing relationship with their firms. Some say it is a true test of fiduciary. Others say it is a conflict of interest.

Couples usually, say they want to maintain control of their own assets – the ones they brought into the marriage – and don’t want to ever again be put into a bad situation due to the lack of control they experienced in their first marriage. As a result, he has his, she has hers, but they also have joint assets that won’t be comingled, in case they ever do divorce.  

A prenuptial agreement prior to getting married can protect assets that may otherwise, be subject to marital property laws. According to Thompson Reuters’ FindLaw, the protections include:

  • The specified assets of one party
  • How property will be passed on after death
  • Clarification of the parties’ financial responsibilities
  • Protection of one party taking on the debts of the other
  • The simplification of property division in the event of divorce

Clearly, when you’ve gone through a marriage where there were substantial assets, and they were split substantially, you aren’t exactly happy to have those assets split a third time.

Postnuptial agreements, executed after the couple is married, address how a couple’s income and assets will be divided in the event of legal separation or divorce. Know your state laws because they impact your financial situation.

Take care of old business first, and then, trust but verify

  •      Equitable distribution. Couples are fooled into thinking it means, “equal division” of property and debt obligations. It doesn’t mean 50/50, it means “fair division.” It is difficult to predict the outcome and what “fair” is. Know what and how much you are bringing to your new marriage.
  •      Alimony. Roughly 20-35% of the ex-husband’s net taxable income.  Alimony is deductible to him, taxable to her, and could be paid in addition to child support.
  •      Child support. Taxable to the payer, and deductible to the receiver. Divorce settlements do not take into consideration all the extras that come into play, and child support money isn’t always there for bigger things like cars and college.
  •      Health Insurance. The ex-husband is obligated to pay for health insurance for the wife and kids, under COBRA, for up to three years in some states. The ex-wife would then absorb the costs after that period, which could be a financial burden. It’s best to plan for the future financial burden.
  •      Social Security. Wives might be entitled to their ex-husband’s Social Security benefits, but, know that it could change once the ex-wife remarries.
  •      Estate Planning. It is like starting all over again, with titling and beneficiaries. But in a blended family you have access to an irrevocable life insurance trust (ILIT), a credit shelter trust/bypass trust (CST) and a qualified terminable interest property (QTIP) trust. All three will avoid probate.

Ask your Hefren-Tillotson financial advisor for more details, and to review:

  1. Marital incomes from all sources
  2. The expense side of your newly created budget factoring in inflation and tax consequences
  3. Assets, liabilities, insurance, Social Security statements, cost basis, and hidden capital gains
  4. Debt, credit ratings, titling, and financial responsibility
  5. Who will keep/sell the marital home?  

Important considerations, aren’t they? Just know that the challenges you face today will transform into solid financial footing for you and your new family tomorrow.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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